The one-pip stop and why it usually fails

[Shadow Trader]

Some scalping systems advertise stops of 1 or 2 pips. The appeal is obvious: tiny risk, big size, quick results.

Practical problems quickly appear. Typical spread on a major is 0.2 to 1.0 pips, so a stop of 1 pip is mostly spread. Normal noise on a 1 minute chart exceeds 1 pip within seconds, so stops get tagged by random movement. Slippage of just half a pip is a 50 percent increase in loss.

The strategy ends up being a measure of execution quality instead of market direction. Only traders with institutional connectivity and negligible costs can operate at that scale.

For retail traders, stops under 3 pips on majors rarely survive realistic costs. Stops of 5 to 8 pips, with proportionally smaller position size, usually give the setup room to work.

A simple test is to look at the average adverse excursion of winning trades. If winners typically dip 3 pips before working, a 2 pip stop would have killed most of them.

What is the typical adverse excursion of winners in the journal here?